a. Bolton Corporation bought a new machine on January 1,
2014 and agreed to pay for it in 5 equal installments of $40,000 on December 31st,
2014 and December 31 of each of the next 4 years. Assuming that the prevailing rate of 8%
applies to this contract, how much should Bolton record as the cost of the
b. Prepare the entry that Bolton would make
to record the purchase of the machinery if the company signed a note where
interest was included in the face amount of the note.
c. Prepare the entry
or entries required for the first payment.
d. How will Bolton's note appear on the December 31st, 2014 balance sheet? Include the
section of the balance sheet and the presentation, with numbers.
2. Refer to question
1. Answer each question again, including
preparation of an amortization schedule assuming that interest was not
included in the face amount of the note.
a. Cost of the
b. Journal entry to
record the purchase
c. Entry or entries
required for the first payment.
d. Presentation of note
on December 31, 2014 balance sheet.
Johns Co. is issuing $7.5 million
12% bonds in a private placement on July 1, 2014. Each $1,000 bond pays
interest semi-annually on December 31 and June 30 of each year. The bonds
mature in ten years. At the time of issuance, the market interest rate for
similar types of bonds was 8%.
What is the expected selling
price of the bonds?
b. Prepare the journal entry that Johns Co. will make when the bonds are issued.
c. The bond indenture agreement requires
that Johns Co. deposit money in a bond sinking fund semi annually beginning on
the first interest payment date. The
controller estimates that the annual rate of interest earned on the investments
in the sinking fund will be 8%. What
amount must be deposited annually in order to have enough money in the fund to
pay off the bonds in 10 years?
d. Prepare an
amortization schedule to prove that your answer in d is correct. Cut and paste
the schedule below. PLACE YOUR AMORTIZATION SCHEDULE AT THE END OF THE QUIZ.
e. Prepare the entry
that will be made each year to record the payment to the sinking fund.